Mad Stranger the Investor

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Sunday, April 9, 2017

Earlier today, there was this article indicating that those who turn 54 this year are eligible for a new CPF retirement planning service (CRPS). There will be a one on one session to help the individual to understand the CPF scheme and plan for the options which will be available one year later when they turn 55.

In the same article, they also provided a few examples on how much you can withdraw at the age of 55. I feel that this is quite useful and will share here with some of my comments:

SCENARIO 1Mr Raju's OA savings at age 55 amount to $100,000 while his SA savings are $180,000, which is a total of $280,000.

The Full Retirement Sum of $166,000 will be set aside in his RA, which will provide him with a monthly payout of $1,380 from age 65 for life.

He can withdraw the remaining amount of $114,000 in his OA and SA. If he owns a property with sufficient property charge/pledge, he can also choose to set aside his Basic Retirement Sum of $83,000 in his RA and receive a correspondingly lower monthly payout of $750 from age 65 for life. In this case, he can withdraw $114,000 from his OA and SA, and an additional $83,000 from his RA.

MadStranger: This scenario is where the OA + SA exceeds the full retirement sum (FRS). In this scenario, you get to withdraw all balances above the FRSIf you own a property with sufficient pledge, you can set aside half the FRS which is also known as the basic retirement sum (BRS) instead. Your monthly payout will be reduced accordingly. Any amount above this BRS can be withdrawn.

SCENARIO 2At 55, Mr Ahmad has $45,000 in his OA and $55,000 in his SA, or a total of $100,000.

From this, $95,000 will be set aside in his RA to form his retirement sum which will provide him with $840 monthly from age 65 for life. He can withdraw the remaining amount of $5,000 in his OA.

If he owns a property with sufficient property charge/pledge, he can choose to set aside his Basic Retirement Sum of $83,000 in his RA and receive a correspondingly lower monthly payout of $750 from age 65 for life. In this case, he can withdraw $5,000 from his OA, and an additional $12,000 from his RA.

MadStranger:This scenario is where your OA + SA is lesser than the FRS but higher than 5k. In this scenario, you get to withdraw 5k.If you own a property with sufficient pledge, you an set aside half the FRS which is also known as the basic retirement sum (BRS) instead. Your monthly payout will be reduced accordingly. Any amount above this BRS can be withdrawn.

SCENARIO 3Mr Lim's OA savings are $25,000 while his SA savings are $35,000 - a total sum of $60,000.

An amount of $55,000 will be set aside in his RA to form his retirement sum which will provide him with $530 a month from age 65 for life.

He can withdraw the remaining amount of $5,000 in his OA.

MadStranger:This scenario is where your OA + SA is lesser than the BHS but higher than 5k. In this scenario, you can only withdraw 5k.

SCENARIO 4Mr Robert's OA savings at 55 are $3,000 while his SA savings amount to $1,000. As Mr Robert has less than $5,000, he can withdraw all the balances amounting to $4,000.

MadStranger:This scenario is where your OA + SA is lesser than 5k. In this scenario, you can withdraw the entire balance.

If we ignore the "invest" component, most account holders can still earn an interest of 2.2% on the first 60k in the OCBC 360 savings account. In addition to this, you also earn an interest of 1% for any incremental balances.

Starting from April 2016, there will be some changes to the interest components. The changes are as follows:

The most important change is the bonus interest can be earned on the first 70k instead of the current 60k.

Other changes are as follows:

1) Payment component:
The interest has been revised from 0.5% to 0.3%
There is now a minimum of $150 for the 3 bills. Previously there is no minimum total to fulfill. There were account holders who paid 3 $1 to 3 different credit cards. They can no longer use this trick.

2) Credit card spending component:
The interest has been revised from 0.5% to 0.3%

3) Invest component:
The interest has been revised from 1% to 1.2%. Also, an additional lower tier has been introduced.

Most people won't qualify this interest component unless they invest with OCBC.

4) Savings component:

There will no longer be bonus interest paid on incremental bonus.

Instead, an additional 1% is earned on the first 70k if you have at least 200k in the OCBC 360 account. This also works out to be a 0.35% across the 200k.

For most people, they will be earning lesser interest.

Comparison between the interests now and the revised interests:

Average
interest per month

Interest

Now

Interest

Apr-17

Base

60000

70000

Salary

1.2

60

1.2

70

3 bill

0.5

25

0.3

17.5

credit card

0.5

25

0.3

17.5

incremental bonus on 1k

1

0.83

0

TOTAL

110.83

105

Assuming you have 70k in the account, you now earn $5 lesser bonus interest per month on average.

In addition to this, you lose out on he incremental balance interest. For every $1000 of incremental bonus, you get $0.83 lesser on average per month.

However, if you have a full 200k sitting inside the account, you will qualify for the "save bonus interest" and will get an additional $58.33 on average

Conclusion:

For some who have larger savings with the bank or do investment with the bank, they can gain more interests.

However, for most people, they will be earning lesser interests from 2.2% to 1.8%. Some have already started looking at alternatives like UOB ONE, BOC smart saver and Citibank maxigain accounts.

Sunday, November 27, 2016

Recently, quite a number of the REITs have been dropping quite substantially. Some have even fell below its NAV. Many investors are expecting a rate hike soon and REITs are heavily dependent on interest rates. With the prices falling, it may be a good time to start accumulating REITs again.

I have computed the REIT ranking for Nov 2016 as follows. It has been a while since I computed the ranking.

The score system only serves as an indicator on how the
REIT is with respect to its yield, P/B and gearing. The ranking is also
heavily dependent on the accuracy of the data shown on reitdata.com,
investors are advised to do your own cross checking. It is always
prudent to do your own research before making any buys or sells.